Is Merkel preventing the solution to the eurocrisis?

2012-06-25

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Every now and then an article is published, delineating the failure of European leaders to provide a definite solution to the eurocrisis. If the author happens to fall in the banal category of against “austerity” and in favor of “growth”, then the brunt of the blame is born by the German Chancellor, Mrs Angela Merkel. The case against Mrs Merkel is seemingly detailed and compelling. She is the one that imposes austerity across Europe and forces people to suffer; that prevents the ECB from further increasing its intervention in buying sovereign bonds and in supporting private banks; that denies pooling the system’s debt etc. In short it is alleged that she alone, in the littleness or narrowness of her mind, obstinately clings on to the disastrous nostrums proposed by her ordoliberal advisers. She is the one that prevents all the others from solving the crisis. As such, the argument goes, if we can get rid of Mrs Merkel or if we can at least convince her about the error of her ways, we will immediately solve this crisis.

How is it that such an odd belief should ever have gained widespread approval in the political world? Why do most people blame Mrs Merkel for not solving the crisis? The way public opinion is shaped in Europe is rather easy to grasp: a chorus of ignoramuses or populists or propagandists keep repeating some absurd libel till the point it becomes a self-evident truth and then this belief is likely to determine future political decisions. This is how a systemic crisis, the eurocrisis, has been reduced to a problem that supposedly stems from the stubbornness of an individual politician, namely Mrs Merkel.

As iconoclastic as this might sound, the case against Mrs Merkel cannot withstand scrutiny, as it is based upon a tissue of unexamined perceptions and egregious fallacies. I identify four primary reasons for that:

At first it completely neglects the systemic nature of the crisis, by means of attributing any failure to the idiosyncrasy of an individual. As a corrective to these puerile fancies it must be stressed that the crisis in the eurozone continues to spiral downwards because of deficiencies in the institutional framework of the single currency in particular and the EU in general that have not yet been addressed. The euro is a currency without a state; that means it is a unified monetary system that lacks a political union, a fiscal union, a banking union, mechanisms of legitimate collective action as well as shock absorbing instruments (e.g. eurobonds). Moreover the EU apparatus is greatly inefficient in most of its operations. This is not because Mr X or Mrs Y or party Z etc. are incompetent. It is because the edifice we have set up here in Europe is problematic from the outset, as we have denied ourselves the functioning of essential institutions, to cover its structural flaws.

Secondly, the blame on Mrs Merkel makes the brave assumption that some individual European (or other) leaders already have a solution in their pockets and as soon as the obstacle called Merkel, is pushed out of their way they will be able to shape the EU in accordance to their caprice. It asserts that the ideas of Mrs Merkel are incorrect and therefore the ideas of her opposition must necessarily be correct. Yet a closer examination will only reveal that they also neglect the systemic features of the crisis; as they too identify the problem in false or insufficient “regulations”, not flawed institutions. For example, it is not that the eurozone lacks essential institutions, but that the ECB is supposedly not intervening in the markets (of course this is a myth as the ECB is among the most leveraged banks on the planet, so perhaps their problem is that it is not leveraged “enough”). Another standard example is the argument which runs along the lines of “for the crisis to be solved, Germany will have to tolerate higher wages and inflation” – this is supposedly the problem, not that the solution to the crisis may only come from treating the problem systematically and holistically, but from playing with inflation. These superficial criticisms fail to strike at the heart of the matter: it is the flawed institutions we erected here in Europe that are the root of the problem and we must therefore understand that no solution will ever be viable without a thoroughgoing reformation of this system. Half-measures of all sorts cannot provide any definite solution, but can certainly perplex things further and make the problem even harder to solve.

Thirdly, it takes for granted that Mrs Merkel already has some grand plan in mind that everybody seems to oppose and this plan will be implemented gradually by sustaining the stress of the crisis, to the point those desperate for a solution will cave in to every demand coming from Berlin. As plausible as this idea may be, perhaps because of its conspiracy theory touch, the comedy of errors and self-contradictions we have been witnessing for at least the last couple of years, seems to suggest that Mrs Merkel and her government are not as omniscient and omnipotent as it is commonly understood. For instance how can one explain the fact that in the beginning of the Greek crisis top German (and other) politicians denied any discussion on a debt restructuring, which they then agreed would be 21% “haircut” on private creditors on July 2011, only to revise their own “prudent” grand plan a few months later with a supposedly definite 50% “haircut” on private creditors, which will in itself soon be considered inadequate by a further restructuring of the Greek debt and a new arrangement of the bailout terms, otherwise the programme in Greece will simply fail because it was from the outset based on a number of unrealistic assumptions. If you think that this is some rational plan coming out of Germany, then you will have to reconsider the meaning of the word “rational”, for it is readily apparent that all this indecision, all that uncertainty, all that bungling and those self-contradictions have greatly exacerbated an already disastrous regime of (half-)measures.

Fourthly the arguments against Mrs Merkel, have completely failed to realize that this economic crisis is ultimately related to the massive failure of the economic science itself, which provided the ideological and conceptual underpinnings to the (mal)practices of Wall Street and the governments across the globe. For those open-minded enough to not be deluded by the tissues of absurdities peddled by the mainstream of the economic science, with its full array of phantom concepts such as the “general equilibrium”, “rational expectations”, “perfect information”, “cyclical flow” etc.; it is crystal clear that the crisis has brought about the need for New Economic Thinking; for a root and branch revision of the science of economics. Anyone who does not want to accept that has either not thought out the full extent of the crisis, or is an apologist of manifestly unrealistic theories that use fallacious methods, covered under the veil of scientism found in those elegant models that distort reality in favor of mathematical convenience and manipulation; and those spectacular arcs and geometric curves that supposedly depict and even predict human action and reality. Personally the more I study economics and observe sociopolitical phenomena the more I am enamored with the idea of “how little we really know”. Towards that end, I find the latest article of Prof. Yanis Varoufakis as an oasis in this intellectual desert. In speaking of the economics discipline and economists, Dr Varoufakis says:

Behind every toxic CDO, behind all lethal financial engineering, there lurked some pristine model of one of us. Behind every economic policy that was responsible for ponzi (that is ‘pretend’) growth prior to the Crash of 2008, one can find some celebrated, some well respected economist who provided the ‘ideological’ cover for that policy to be adopted. Behind every austerity measure today, that suffocates our societies, again there stands an academic colleague of ours, whose models and theories provide the powers that be with the audacity to inflict such policies onto our peoples. In short, you and I are guilty for what our fellow Greeks and Italians are suffering. Even if we did not believe in these particular economic models, we did not do enough to alert the world to their toxicity. We are, indeed, guilty.

For these four reasons I find the discussion against Mrs Merkel as misplaced and completely detached from reality. However in case you misunderstood the message I am trying to convey I need to point out that this is not an apologetic to Mrs Merkel, her government, her advisers, her policies, her country nor is it an all out offensive on her opposition. It is not about the incompetence of individuals or groups of individuals, nor about the sterile bureaucratic palaver that many go along with, nor the humbuggery of political pontifications. What I am trying to point out through the lines of this article, what I have assiduously stood for, is that the crisis is rooted in the manifestly flawed system we all operate in. It is a reminder that we need to strip away all the superficialities of the arid, narrow-sighted controversies that dominate the political world and cut into the nub of the matter.

What we need is new institutions and an alternative way of thinking, not new “leaders”.

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